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Regulation and Compliance > Federal Regulation > SEC

BB&T to Return More Than $5M to Retail Investors and Pay Fine: Enforcement

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The Securities and Exchange Commission announced that BB&T Securities agreed to return more than $5 million to retail investors and pay a $500,000 penalty to settle charges that a firm it acquired misled its advisory clients into believing they were receiving full-service brokerage services in-house at a discount while significantly less expensive options were available externally.

According to the SEC’s order, Valley Forge Asset Management used misleading statements and inadequate disclosures about its brokerage services and prices to convince customers to choose the in-house broker.

The SEC’s order finds that, despite promises of a high level of service at a low cost, Valley Forge did not provide any additional services to advisory clients using its in-house brokerage than it did to advisory clients who chose other brokerages with significantly lower commission rates.  According to the order, Valley Forge charged commissions averaging roughly 4.5 times more than what clients would have paid using other brokerage options, and the firm obscured the price difference by claiming that it was giving clients a 70% discount off of its supposed retail commission rate.

“Valley Forge put its own interests ahead of its advisory clients, causing them to spend more money unnecessarily by portraying inaccurate costs and benefits of using its in-house brokerage,” said Kelly Gibson, Associate director of enforcement in the SEC’s Philadelphia Regional Office, in a statement. “Dual registrants and advisors with affiliated broker-dealers must accurately disclose all conflicts of interest arising from their brokerage arrangements.”

The SEC’s order finds that BB&T Securities as the successor in interest to Valley Forge violated the Investment Advisers Act of 1940. Without admitting or denying the findings, BB&T Securities consented to a cease-and-desist order, a censure, and agreed to pay disgorgement of $4.7 million and prejudgment interest of $497,387, which it will distribute to affected current and former clients through a fair fund, as well as a $500,000 penalty.

BB&T Securities has ended Valley Forge’s existing directed brokerage program by amending its cost structure and its disclosures.

Former Broker Fined, Barred for Defrauding Customers

A federal district court entered a final consent judgment against a broker who was charged with defrauding customers by making unsuitable and unauthorized trades and churning customers’ accounts that enriched the broker at the customers’ expense.

The judgement orders William Gennity, who was formerly associated with New York-based broker-dealer Alexander Capital L.P., to pay $302,483 — consisting of $127,686 in disgorgement, $14,797 in prejudgment interest and a civil penalty of $160,000.

Separately, the SEC instituted settled administrative proceedings against Gennity in which, without admitting or denying the findings, he consented to a commission order barring him from the securities industry and penny stock trading.

The SEC’s complaint alleges that from July 2012 to August 2014, Gennity recommended to four customers a pattern of high-cost, in-and-out trading without any reasonable basis to believe that his customers could make a profit.

Gennity’s recommendations resulted in losses for the customers and gains for Gennity, and, according to the SEC, he also lied to his customers about the potential for the accounts to profit. The complaint also alleges that Gennity engaged in unauthorized trading and churning.

Australia-Based Investment Advisor Fined for Misleading Statements

Australia-based investment advisor Goldsky Asset Management and its owner, Kenneth Grace, were fined for making false and misleading statements about its business in filings with the SEC and on its website.

A federal district court entered final consent judgments ordering Goldsky and Grace to pay civil monetary penalties of $50,000 and $25,000, respectively.

The SEC’s complaint, filed Sept. 27 in the Southern District of New York, alleged that Goldsky’s Forms ADV for 2016 and 2017 — which Grace signed — falsely stated that Goldsky’s hedge fund, Goldsky Global Alpha Fund, had an auditor, a prime broker and custodian, and an administrator.

The complaint further alleged that, in its Forms ADV and ADV Part 2A, Goldsky stated that it managed more than $100 million in discretionary assets, when it in fact had no assets.

According to the complaint, Goldsky’s website falsely claimed that Goldsky Global Alpha Fund earned 19.45% compounded annual returns since inception, 70.33% compounded monthly returns since inception, and 25.30% returns for the year ended Sept. 30, 2017.

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